Most agents know that biweekly payment programs offer dealers the opportunity to reduce their customers’ interest cost over the life of their auto loan by prepaying a small amount of the principal each month. But some may not be aware of the many additional advantages biweekly programs bring to a dealer’s F&I product lineup — for lease customers as well as finance customers.
To fill in the gaps, Agent Entrepreneur spoke with four leading executives in the biweekly segment: David Engelman of SMART Payment Plan, Equity 4 U Inc.’s Mike Hull, Lynn Simmons of Economic Advantages Corp. (EAC) and US Equity Advantage’s Robert Steenbergh. We learned that proper presentation is the key to getting biweekly payment programs on more menus at more dealerships.
Extolling the Virtues
First and foremost, the executives we interviewed agreed that agents should stress to dealers that these products carry significant benefits to end users and give them options that they might not otherwise have access to.
“Compared with many aftermarket products that customers purchase, where they may never experience the benefits, our program delivers benefits for the entire duration of our service,” says Lynn Simmons, president of Economic Advantages Corp. (EAC) in Sheldon, Vt. “In addition to added revenue to the dealer, a satisfied customer who has paid off their loan faster is a customer who returns to purchase their next vehicle sooner.”
The fact that biweekly payment programs benefit both the dealer and the consumer is a point David Engelman, CEO of Naples, Fla.-based SMART Payment Plan, stresses as well. “Our agents focus on providing dealers with a proven, reliable system for offering car buyers smaller and easier payments. Properly implemented, our smaller and easier payments can transform a dealership’s sales process. Agents and dealers want products and services with a proven demand and tangible benefits.”
“Above all else, agents need to verify that the company is licensed to transmit money, or is an authorized delegate to do so in the dealer’s state,” notes Robert Steenbergh, an attorney and president and CEO of Orlando, Fla.-based US Equity Advantage. “This is more than a benefit; it is a must. Agents should also do their due diligence to verify if the company’s banking relationship is with a reputable institution and whether it is a direct relationship or if there is a third party between the bank and provider. Other benefits to consider include the level of customer service and dealer support offered by the company and its experience in automotive.”
Mike Hull, president of Lamar, Mo.-based Equity 4 U Inc., points out that, for agents and dealers alike, making a profit on F&I products is only going to happen if there is room in the customer’s budget to add products in the first place. It doesn’t matter how much the customer might want or need those products, or how much it might save them in the long run, if they cannot afford them.
“[Biweekly payments offer] a turnkey solution that 100% of the time brings the dealer’s customer back in owing less money to their respective finance source than a conventional monthly payment schedule,” he says. “That benefit pays huge dividends to all parties involved. For example; using a $25,000 car at an average interest rate, the customer trading out of a 72-month loan in 42 to 48 months — in 2018 — from the time of sale will owe around $1,200 less to their bank. That $1,200 may be the difference in making the deal or not making the deal.
“If the customer is upside-down, now the dealer has to deal with getting an on the new loan, setting up an even higher negative equity situation on the next deal, if the banks will even let them,” Hull adds. “Now take that $1,200 and multiply it by 50, 80, 100 trade-ins per month, multiplied by three years. The benefit to the agent and dealer in 2018, 2019, 2020 and beyond now stands in the millions of dollars that the dealer can use to make more deals with.”
To sell the product to car buyers, Hull adds, agents should be sure F&I managers are able to explain the financial benefits over the life of the loan. “All customers should have a debt reduction plan that they can execute. F&I managers should focus on the seamless equity benefits as it relates to the customer’s budget, produced by setting up a biweekly debit schedule. We provide the F&I manager with an amortization schedule showing the equity build up at all stages throughout the loan term. The F&I manager should be able to explain the impact of increased equity once the customer decides to come back and trade or even sell their vehicle outright.”
“F&I managers should focus on the benefits our customers value about our service — convenience, smaller payments that match their paydays, paying off their loans faster and eliminating bill payment hassles and late fees,” Engelman notes.
“It’s also important to offer this payment option to all customers who are financing their vehicles,” Simmons says. “Different customers may have different reasons for their interest in this program. With today’s busy schedules, for instance, ease and convenience can make a big impact for many. For those who don’t budget themselves well, having their payments consistently made on time helps to keep them on track.”
As with all products in the F&I office, ensuring that every customer has a chance to learn about biweekly payments and how the product could benefit them is crucial. “What’s important to one customer may not be the same for another,” Simmons continues. “The F&I manager cannot know what that would be and should, therefore, always offer the option with its costs and its benefits. We also know that although people could make additional principal payments themselves, most of us do not have the self-discipline to do it on a consistent basis. Ultimately, it is the customer’s determination as to what the value is for them. In the interest of full customer disclosure, it should be offered to all.”
“I believe there is a value statement for every customer,” Steenbergh says. “It could be to get out of a negative equity situation, to build equity sooner in the life of the loan, to owe less at trade-in, to pay off the loan early, to save interest, or any combination thereof. Even if a customer has a low interest rate with a term between 60 and 72 months, paying that vehicle off faster provides tremendous value in the equity of the vehicle at the time of trade. It is our job and the role of F&I to educate customers about the benefits of biweekly as well as any out-of-pocket costs, and let them make the decision to purchase.”
“Benefits such as automatic debits and ease of budgeting begin immediately,” notes Hull. “With proper disclosure, our service should be offered to all customers who are financing. Each individual customer will have different wants and needs, as an F&I professional; you should let the customer decide which products or services fit their needs.”
“Every customer achieves convenience: smaller automated payments that match their paydays, faster loan payoff, eliminating bill payment hassles and late fees,” says Engelman. “Even lease customers achieve benefits. And, when customers add mortgages and credit card payments, we can help our customers reduce interest charges. Every finance and lease customer should be given the opportunity to match a smaller payment to their payday and be fully informed about all additional benefits and costs.”
Know the Options
For agents, all four of our experts lead companies at the top of their game when it comes to biweekly payment products. But while they offer very similar programs, they each take approaches that set them apart from the competition. Before deciding to include one over another in the product mix an agent offers to their dealers, knowing what those differences are is key.
“Fundamentally, all biweekly payment services apply the same basic logic: You debit the customer’s account every two weeks in an amount equal to half of their monthly payment,” says Steenbergh. “This equates to 26 half debits per year (or 13 full months’ worth of payments). The additional monthly payment is initially used to pay fees and, in subsequent years, the extra amount is sent to the lender and applied to principal. Small differences exist in such things as flexibility in the debit schedule, the timing of sending lender payments, ancillary fees charged, and pricing and commission structure. More notable differences exist in areas such as licensing, corporate structure, bank partners involved in the handling of funds, and the levels of customer and dealer support that are provided.”
He went on to note those small differences that set his company apart. “I founded US Equity Advantage simultaneously with MenuVantage in 2003. The company is among, if not the industry’s oldest and largest provider. I believe our name is synonymous with an insider’s understanding of the car business and menu-presentation because biweekly was a large part of MenuVantage’s success. We are also committed to our customers and doing what is right for them; whether it’s the end customer or our dealers and agents. In addition, USEA holds the most state money transmitter licenses, by far, which only strengthens our market position.”
“Client payments are made on a schedule to match their pay days,” Simmons says of her company’s approach. “One additional payment is generated over the course of each year. These funds are sent to the lender to be applied against the principal portion of the loan. This accelerates loan payoff, providing additional benefits to the client such as a decrease in interest paid, accelerated equity in the vehicle, increased trade-in value, structured budgeting and the convenience of timely automated payments with online tracking and assistance from experienced customer service reps, providing stress free support. ‘Bi-Auto PriorityPay’ also enables our clients to add other debt, such as mortgages, credit cards and student loans, for the only roll-down program which provides additional significant savings by paying down higher interest obligations first.”
“Equity 4 U sets customers up on an electronic debit schedule that will generate additional payments to be used as principal reduction to accelerate the loan payoff,” notes Hull. “Where we like to stand out is with the customer experience. The Equity 4 U positive customer experience will in turn highlight another reason to return to the selling dealer. Our customers enjoy the benefits of our superior domestic customer service department, automated activity updates and nonsufficient funds forgiveness that includes zero add-on costs to the program even if the customer makes an occasional mistake. In everything we do, we ask ourselves if this will help or hurt the dealers’ CSI score.”
“First, we are not a ‘biweekly payment company.’ We are a bill payment service,” Engelman stresses. “We pioneered and perfected matching automated bill payments to paydays. We focus on providing exceptional customer service, dealership training and compliance. We are the only company in the industry to employ a chief compliance officer, and are fully compliant regarding fee disclosures, contract terms, customer notices, training and sales materials.”
Leaving Controversy Behind
It is worth noting that while biweekly payments came onto the national radar in May 2014 with a memo from the National Automobile Dealers Association (NADA), our experts all agreed that, while it was frustrating at the time, it is now firmly in the past. The memo focused on the fact that the FTC was taking a closer look at these payments, and that the NADA itself had received inquiries. The memo warned dealers that biweekly programs could be susceptible to claims of unfair or deceptive practices, and suggested they should take care in selling them.
However, providers were very quick to point out that the memo failed to acknowledge all of the benefits of a biweekly payment program to a consumer; only reducing the amount of interest paid over the course of an auto loan was addressed. Benefits such as increasing the amount of equity in the vehicle faster, paying off the loans faster, convenience of scheduling payments to match payday cycles and never having to worry about late or missed payments were ignored in the initial memo. Overall, however, while the storm has long since passed, the experts note that it is part of an ongoing attack on the F&I department, and that they all learned something from it.
“I think a more accurate characterization is that biweekly is under review, and I suspect the entire F&I product line is, as well,” says Steenbergh. “Much has been made about the cost of bi-weekly programs compared solely to interest savings. That does not reflect a fundamental flaw in the service, but rather that the perception that interest savings is the only reason why a consumer would want to enroll in a service. Consumers pay for many conveniences in their daily lives and know that it comes with a cost. Think of ATM fees, pre-made food, personal trainers, lawn care and the list goes on. Automated accelerated payment programs are no different.
“Many people assume the only benefit of a biweekly payment program is interest savings. However, a statistically relevant customer survey we conducted in September 2014 revealed that paying off their vehicle sooner is the top reason customers enroll, followed by convenience and any interest savings net of fees,” Steenbergh adds. “These are solid value statements to disclose upfront along with all the costs and benefits related of the program.”
“While we did not lose any business because of that memo, I have heard that others did, which is unfortunate,” says Steenbergh. “It’s only natural for dealers to shy away from anything that is being looked at by the FTC, or any government agency, for that matter. For agents who live and die by their dealer relationships, no one wants to be the one who brings in a liability. So yes, I think the recent negative press has given some reason to pause, but this is not necessarily a bad thing. Sometimes it makes sense to step back, review your business and make sure you are aligned with the right partner and products/services for the long term. I wouldn’t expect agents to do business with us if we couldn’t prove our integrity and value.”
“There is no doubt the FTC inquiries and subsequent NADA memo has had an impact on the decision making process for both dealers and agents,” says Hull. “The NADA memo was profoundly more damaging, as it incorrectly drew parallels from one company (NPN) being investigated to the entire biweekly industry coming under siege by regulators. All companies and services go through increased regulatory pressure at some point; those who learn from the mistakes of others will emerge stronger than ever.”
“Naturally, negative headlines influence behavior and can create fear in the marketplace,” says Engelman. “However, dealers and agents who do business with us recognize our leadership role in addressing compliance, focusing on convenience, smaller and easier payments, faster loan payoffs, offering exceptional customer service and disclosure of total costs and fees. The agents and dealers that offer our service are familiar with the proven demand, our values, our people and our commitment to regulatory compliance.”
“We believe that the dealers and agents who have been properly and successfully marketing this payment option would and should not be discouraged. It was, however, a reminder for all concerned not to become lax with regard to disclosure,” notes Simmons.
However, all four companies have taken a more active approach in making sure they are ready should any regulatory agencies turn their eye on their products, specifically. Ensuring programs are compliant and up-to-date, with clear terms and fees stated up front has always been a priority, but now they are taking steps to ensure nothing got overlooked along the way.
“I believe all products and services sold at the dealership are and will be targeted by the CFPB,” says Hull. “We have prepared more in the last 12 months for increased regulatory pressure than we have the last 10 years. We have initiated internal and external reviews of all language in our materials, contracts and website to ensure we are fully compliant. As a result of these reviews, we have either completed implementation or are in the process of implementing updates.”
Engelman agrees. “Our focus has always been on helping people and providing exceptional service to consumers, auto dealers and agents,” he says. “We have the same level of focus regarding regulatory compliance. We hired a chief compliance officer, consulted with leading compliance attorneys and built a robust compliance department to satisfy regulators in the same manner that we’ve always satisfied our customers, dealers and agents.”
“As far as preparing for any review, we continually audit and update our written materials, advertising and training procedures for our in-house customer service personnel to make sure we’re fully compliant regarding disclosure and compliance,” says Steenbergh.
“We have always believed in the effectiveness of our program, how it helps customers to accelerate their debt payoff, to better budget their lives, to provide structure which helps to reduce their stress,” says Simmons. “We have enjoyed enormous customer loyalty over the 26 years we have been in business, with a record virtually devoid of consumer complaints. We have always disclosed all our fees along with all our benefits. We intend to continue to provide the excellent service that our clients expect and receive from us.”